As one of the largest players in the global payments industry, Mastercard has historically delivered consistent revenue growth which has been driven by a well-established core network. Building upon strong fundamentals, Mastercard has a healthy balance sheet and an incredibly high profit margin. Growing globalisation, digitalisation and consumerism has continued to propel the entire global payments industry, which is predicted to only accelerate post- COVID.
Mastercard supplements this by maintaining industry leadership through constant investment in technology and acquisitions such as Nets and Finicity among others. With the predicted success of these strategies, Mastercard will continue to play a large role, however, it is unlikely to monopolise this industry, due to heavy regulation and Mastercard’s inability to materially differentiate itself from VISA.
Our estimate of Mastercard’s intrinsic value through the base case DCF is $302.48/share. Share price on 01/09 is $343.70, traded at a 13.6% premium to the estimated intrinsic value. In accordance with our results from relative valuation of P/E (46.98x) and EV/EBITA (35.18x) Mastercard is currently overvalued. Taking into consideration its established market standing as a leader in the payment network as well as its expansionary policies in latest technologies, and the short-term headwinds Mastercard will be facing, we hold a neutral outlook for Mastercard.